How to Build Credit with a Secured Loan

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Did you know that you can build your credit with a secured loan? If you have no credit score or have a poor credit rating, there are several ways to build good credit. One of which is take out a secured loan. Yes, that sounds counterintuitive but it really does work when done right. Here’s how you can build good credit with a secured loan:

1. Find the right type of secured loan

Research your secured loan options and find out which types are suitable for your needs. If you have bad credit, it may be a bit difficult to find a suitable secured loan. Seeking for financial and expert advice may help. But don’t give up because more and more lenders are now catering to borrowers with bad credit.

2. Borrow only what you need

Once you find the right type of secured loan, the next step is to set the amount you want to borrow. The trick is to borrow only the minimum amount or what you need. It’s very important to also consider your budget when taking out a secured loan. If you goal is to improve your credit score, you cannot afford to miss a payment. Otherwise, you’ll only hurt your credit score even more.

3. Never miss a payment

If approved for a secured personal loan, there’s really just one thing you need to keep in mind. Never miss a payment until the end of the loan term. If you can repay the loan on time, it will be inevitable to see a significant improvement on your credit score after 12 months or longer. This is why it’s very important to have a repayment plan ready when applying for a secured loan. Make sure you can afford the monthly repayments to avoid any further financial complications.

A Checklist for When You’re Borrowing Money

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Whether you’re taking out a secured or an unsecured loan, it’s important to understand what exactly it is you are getting into. Remember that debt in any form is a major responsibility that can lead to financial consequences if left unpaid. To help you make a sound decision, here’s a quick checklist to consider when borrowing money.

Check your credit files

Start by checking your credit files or history, which you can accomplish for free online. By making sure that your credit history is free of any errors or inaccuracies, you are increasing your chances for approval especially if you’re hoping to apply for a large sum of money.

Consider using your savings

If you only need a small sum of money, you might to consider using your savings instead. Remember that when you borrow money, you are going to pay for the interest incurred. If you think that using your savings will be cheaper then going this route makes perfect financial sense.

Check the total loan amount you’ll repay

If taking out a loan is the next best option for your financial need, the first things to investigate is the total amount of money you’ll need to pay back. In general, the longer the loan term, the higher the amount you’ll pay back. If you can manage a shorter loan term then you should go for it if you want to save on loan payments.

Compare the best available deals

Never settle for the first cheap loan deal you stumble upon. If you want the best end of the deal, it pays to take your time to shop around and compare available loan ideas in the market. You can use comparison sites to do the sifting through for you. When comparing different loan deals, make sure to investigate interest rates, hidden fees and loan terms.

The Different Types of Secured Loans

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If you need a large sum of money to meet a financial need and you have an asset you can use as collateral, then getting a secured loan may be the best route to take. But which type of secured loan should you take? It’s important to understand how each type works to make an informed decision. Here are quick previews to the different types of secured loans available at your disposal.

Mortgage Loan

If you’re planning to purchase a home, you’ll likely need a mortgage loan like everyone else. The loan is secured against the home you are buying. This means that you pay only for the down payment then borrow the rest of the amount from the bank or a major lender. You will need to pay for the loaned amount otherwise known as the mortgage on a monthly basis. In the event that you are unable to repay the mortgage, the bank or lender may foreclose your property and sell it at auction. In general, mortgage loans last 15 to 30 years. Interest rates are lower and cheaper since there’s security involved.

Car Loan

Just like a mortgage loan, car loans are secured against the car being purchased. With a car loan, you only need to pay for the down payment typically 10 to 20% of the car’s value. The rest is covered by your lender, which you need to repay per month until fully repaid. To be eligible for a car loan, you must have a good credit history in addition to a steady source income. In the event of non-payment or default, the lender has the legal right to repossess your car and sell it auction to cover for your outstanding balance.

Logbook Loans

Logbook or title loans are another type of a secured loan. As opposed to car loans, logbook loans use already paid off vehicles as collateral. The loan should be less than 10 years in age and must be free of any financing to be eligible for a logbook loan. Lenders may also require for the car to have full coverage insurance. Logbook loans are ideal for people with bad credit. The loan does not require any credit check hence easier to avail and get approved. But just one downside, the loan can be expensive because of the higher risks lenders are taking.

Savings Secured Loan

If you have a poor credit rating and you want to build your credit, CD or savings-secured loans may be a good option to consider. These types of loans are secured by a certificate of deposit or your savings account. Opting for this loan means that the bank holds the funds in said accounts so they can lend you a loan up to 95% of the funds in the accounts.

Which is Better? Secured vs. Unsecured Loan

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In an ideal financial world, you wouldn’t need to borrow money. You have enough stashed for retirement and you’re living a comfortable financial lifestyle. Unfortunately, the reality is not even close to what’s supposed to be ideal. For most people, borrowing money is inevitable. And one of the key considerations to bear in mind when taking out a persona loan is to understand when a secured or an unsecured personal loan is better for your situation.

Secured Loans vs. Unsecured Loans

To answer the question of which is better between secured and unsecured loans, it’s nest to start by understanding what exactly the loans are.

Secured loans are loans that are secured against an asset or collateral typically your home, car or any other eligible asset. Loans of these types are available for people with an asset they can use to back their loan application. In general, you can borrow anywhere from £5,000 to £125,000 with a secured loan. The maximum amount you can borrow will often depend on your credit history, income and the worth of the property.

Unsecured personal loans, on one hand, do not need any collateral. This means the loan type is easier to avail. Processing of your loan application is also faster. You just need to meet the basic requirements and you’re application is good as approved. But since there’s no security involved, loan offers are significantly lower than what secured loans offer. These types of loans are ideal for people with no asset to use for collateral.

Why choose secured loans?

Both types of personal loans have their set of advantages and disadvantages. With secured loans, the biggest disadvantage is the risk of repossession. If you used your home, for example, for a mortgage loan, the lender has the legal right to repossess the property in the event of nonpayment or default.

But while risky, secured loans are not without its advantages. In fact, secured loans are often the more recommended option because of its lower interest rates and more flexible terms. With a secured loan, you can borrow a larger amount of money because there’s security involved as part of the credit agreement. Repayment terms are also longer, sometimes up to 25 years depending on the type of secured loan you applied for.

If you are in need of a large sum of money and you have collateral you can use for the loan then secured loan may be the best option to meet your financial needs. It’s risky but it’s also low cost. You just need to make sure that you can handle the monthly repayments to avoid repossession.

Why choose unsecured loans?

If you don’t have an asset you can use for collateral, unsecured loans come as handy alternatives to secured loans. With unsecured loans, the biggest disadvantage is the smaller loan offers. In general, you can borrow anywhere from £1,000 to £25,000 in the UK provided that you have a good credit score and has a steady income.

Unsecured loans are also not the cheapest loans available in the market. In fact, interest rates are often higher than that of secured loans because of the high risks the lenders are involved in. When a lender lend money without collateral, they offset the high risk by raising the internet rate. Then there’s also the hidden fees and charges to worry about.

In any case, unsecured loans are accessible personal loans you can rely on to meet a wide array of personal needs from medical expenses, car repair, overdue bills or rent and many more. Best of all, you don’t need to worry about the risk of repossession.

Logbook Loans: What You Need to Know

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When you have bad credit and you can’t get approved for a personal loan, it doesn’t mean you should stop looking. While traditional secured personal loans are advantageous in a number of ways, there are alternatives for people with bad credit. One of which is a logbook loan.

Logbook loans are loans secured against a vehicle. If you’re a car owner, of legal age and a UK resident then you are eligible to apply even if you have a poor credit rating under your belt. But before you go ahead and sign any credit agreement, below is everything you need to know about the financial product.

What is a logbook loan?

As mentioned, logbook loans are secured personal loans that require a vehicle for collateral. The financial product is offered for people with bad credit and who can’t otherwise get approved for a traditional personal loan elsewhere. It is available and easily accessible online. If you meet the requirements and have the necessary documents ready, your loan application may get approved within the same day you applied.

How much can you borrow?

With a logbook loan, you can borrow anywhere from £500 to £50,000. The maximum amount you can borrow will depend on how much your vehicle is worth. Typically, lenders let borrowers avail up to 50% of the car’s official trade value. Some lenders may lend you up to 70% depending on your personal circumstance. In any case, it is recommended for lenders to keep the borrowing at minimum. In fact, following the simple rule to borrow only what you need and what you can afford makes perfect sense. If you want to borrow money, then head to TopLogbookLoan and apply there.

How long can you repay the loan?

Repayment terms vary from deal to deal but in general, logbook loans can be repaid in 12 months up to 36 months. Repayment can be done weekly or monthly. Before your loan application is approved, automatic debit deduction is usually set-up. Your job as borrower is to make sure your debit account always has sufficient balance to cover for the weekly or monthly repayments. Otherwise, your lender may sic the debt collector on you. In addition, there’s also hidden fees and charges to worry about for missed or late payments.

How much do logbook loans cost?

While secured on your vehicle, logbook loans have been criticized as extremely expensive. The typical representative APR for logbook loans is 400%, which is multiple times more than a traditional personal loan. This is because of the high risks lenders are taking. Even if you have collateral for the loan, the fact remains that you have bad credit and either a history of ccjs or default. To offset the risks, lenders are raising their interest rates instead.

But thanks to stiffer competition, lenders are now offer cheaper logbook loans deals. If you know where to look, you may be able to avail logbook loans with representative APRs from 150% to 300%.

What are the risks?

There’s another risk other than the high interest rate you should fully understand before taking out a logbook loan. It’s the risk of vehicle repossession. In the event that you are unable to repay the loan, your lender may repossess your vehicle as per the bill of sale and credit agreement. Oftentimes, you’ll be given a grace period to update your loan repayments. After several attempts and you are still unable to repay the loan, a debt collector will be tasked to collect the repayments. If you are still unable to keep up with the payments, this is when your vehicle is repossessed and may be sold to cover for your outstanding balance.

What are the advantages of a secured loan?

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There are many types of secured loans available in the market. Secured loans are personal loans that require collateral or security, which means high risks. If you use your home, for example, as collateral, you may lose the property in case of nonpayment. Despite the risks of repossession, secure loans remain a highly recommended option than other types of loans because of its advantages. Below are some of the reasons why you should consider a secured loan.

You can borrow higher loan values.

Because there’s security involved, borrowers are able to avail higher loan amounts depending on the value of the collateral or security. Some personal loans may have capped limits but the loan value is still generally higher than if you apply for an unsecured loan. If you need a large amount of money to meet a wide range of personal needs such as home renovation, medical expenses, vacation and other major personal expenses, opting for a secured loan makes perfect financial sense. It won’t be easier to get approved for as unsecured loan, but the higher loan value should be worth it.

Interest rates are usually lower.

Another chief advantage of personal secured loans is the lower interest rates. With a secured loan, the collateral lowers the risks for lenders thereby allowing borrowers to enjoy a more competitive interest rates in general. If you pay off the loan, the lender gets back the principal plus interest. If you are unable to repay the loan, the lender gets the collateral. Either way, the lender is barely taking any risks while you are embracing the risks of repossession. For this reason, it’s only right that you get lower interest rates for the personal loan.

Credit rating may not be a factor.

Lenders that offer personal secured loans do not necessarily consider your credit history a major factor. Yes, lenders run credit checks but a number of late or missed payments will rarely affect your loan’s approval. As long as you meet the loan requirements and your collateral is cleared, you can expect approval as quickly as possible. If you have a history of ccjs or defaults, however, it may be a different story. Some lenders may not be as open to lend you money because there may be underlying issues that may increase the risks on their end.

But having good credit can be advantageous.

If you have good credit and has always been a responsible consumer, this is a chief advantage if you’re planning to take out a secured personal loan. Because of your stellar credit rating, lenders are more willing to offer you higher loan amounts, often more than the perceived value of your collateral or security. Provided that you are also employed and has proof of steady income, some lenders may let you borrow up to 125% of your collateral’s value.

Lenders are also more flexible with their terms.

When collateral is involved, lenders are not only more willing to do business with you but they are also less strict with their terms. Repayment terms, for example, are longer than unsecured personal loans. In fact, you may be able to tailor the repayment term according to what’s most comfortable for you financially.

With a secured loan, employment is not always important either. While majority of lenders would want borrowers to have a good paying job and a steady income, some lenders may consider a loss job as a good reason for the loan provided that the collateral is covered and repayment is arranged accordingly.